Easy Come, Easy Go

VIXperation ❓Inflation ❌ Federal Reserve ❌ OpEx TBD

Big day yesterday. VIXperation and the CPI/PPI both arrived before the open and investors did not like the inflation implications of the latter announcement. Equity futures had turned down before the announcement and that drop accelerated with the 8:30 am news drop. Markets flattened out until Fed time at 2 pm. JayPow and the team held rates steady but offered a punky outlook on the economy and concerns that the Middle East conflict might feed into further inflation. At the close, headline US equity markets were all down by more than 1%.

That was enough to erase the progress made in the VIX Mix on Tuesday. No change in the underlying count of indicators: Zero bullish, one neutral and 16 bearish.

Add another day to the “not bullish” streak that now stands at 45 trading days. I can’t help but see this week’s three bars as a middle finger to investors who were confident that a bottom had been reached.

We’ll finish today’s post with a look at one of our favorites - the VIX futures term structure through the lens of the ratio of medium-term VIX futures (using the VIXM ETF) and short-term VIX futures (using the VIXY ETF). We’ve highlighted recent episodes of “double rollover” where two sets of moving averages (3/9 ema and 8/21 ema) both crossed lower. You can see that these are coincident with a period of weakness in the S&P 500 index - sometimes very brief as we saw last October and November. Starting in mid-February, the longer-term set of moving averages went red and hasn’t gone back green. Should you have gone short in the middle of February? That’s never easy, in part because of the typical increase in day-to-day volatility. But the sight of all those red bars might suggest either tactical moves or a simple attitude adjustment that might help you stay calm in a rockier market.

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